Is the proposed change to HARP meaningless?by Tim Manni
Over the last month or so, talks have circulated on Capitol Hill concerning an update to the federal government’s Home Affordable Refinance Program (HARP).
HARP’s struggles have been well documented. One fault of the program so far has been that even though the HARP guidelines state borrowers with a loan-to-value ratio (LTV) of up to 125 percent qualify, lenders have been mostly unwilling to refinance loans over 105 percent LTV.
The Federal Housing Finance Agency (FHFA) has indicated to lawmakers that an upcoming change to HARP will include raising the LTV above 125 percent.
The FHFA was unwilling to estimate how many borrowers would benefit from such an upgrade, but one lawmaker estimated up to 1 million more borrowers could qualify.
That’s not enough!
To echo the criticism of Representative Elijah Cummings of Maryland, this change isn’t enough!
If lenders aren’t willing to refinance loans above 105 percent, even though qualified borrowers can technically have an LTV of up 125 percent, what’s going to change by increasing that LTV?
How have the incentives or rules changed to attract more private lenders to refinance more underwater loans?
Is the Fed the key to more underwater refinances?
Last month we speculated that the Fed may be the missing link to more underwater refinances when they announced they would once again purchase mortgage-backed securities:
For any expanded HARP program to work, lenders need to be willing to refinance the loans and someone has to be willing to invest in the securities they produce. If that investor agreed to accept the loans with no “push back” provision in case of defect, lenders would be more willing to do these kinds of refinances.
As such, with the Fed back buying mortgage-backed securities, there’s a willing investor, and one with a balance sheet that can easily handle loss and who probably cares more about economic benefit than individual profits and losses, anyway.
In my opinion, increasing the LTV over 125 percent just isn’t enough.
The FHFA told lawmakers that they could expect details of the expanded HARP program by month’s end…We’ll be waiting.